Comment by danuker | Hacker News Reader

Comment by danuker | Hacker News Reader

I am a cryptocurrency enthusiast (disclaimer: I even own some). But I find this article fallacious.

> if we think of Bitcoin as a battery, what can we do with it? The key properties of Bitcoin’s battery are: 1) always on and permissionless (no need to find customers, just plug and go)

I think it is a very wasteful transformation of the power put in. You can get it to be always on and "permissionless" without burning this much energy: check out [Bitcoin Cash, Dash, ZCash](https://www.crypto51.app/) and other, cheaper-to-mine (still proof-of-work) currencies.

The actual benefit you get is security via out-costing: "you have to burn up this many resources to double-spend".

Because of the simplicity of this out-costing, lots of people trust it, because they can understand it (even though it's wasteful).

> and 2) naturally seeking low-cost electricity: it will always buy when the price is right.

Just because electricity is cheap in some places doesn't mean we should bid it up pointlessly.

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I would love to see a PoS scheme that I could understand enough to trust. But they are much harder to create, and until then, I keep my money in PoW ones, in spite of the cost of transacting.

The energy usage of a PoW scheme is in direct proportion to its usage (transaction fees), block reward and price of the underlying.

As such, I don't see that Bitcoin Cash, Dash or ZCash would be fundamentally more efficient if these factors were to rival Bitcoin, even if parameters such as block size were to change. For the longest time, Ethereum transactions were far cheaper than Bitcoin transactions, but today they rival Bitcoin.

Transaction fees are not just proportional to usage. They are a price set by demand (usage) and supply (block space).

Currently Bitcoin limiting the block size to 1MB is artificially lowering supply.

Recently, Bitcoin Cash has surpassed Bitcoin in transactions per day: https://bitinfocharts.com/comparison/transactions-btc-bch.ht...

Their blocks are larger, so there is more room for transactions, so miners are not so well rewarded, so they can afford to waste less electricity in total.

Of course, this reduced waste implies reduced security (instead of securing >$700k/h, it's "only" $8.5k/h - https://www.crypto51.app/).

What I'm trying to get at is that all of these factors matter, not just one of these factors in isolation. Ethereum also has larger block size over time, and I'm sure it processes far more transactions than Bitcoin.

Suppose that Bitcoin Cash were to increase in price ten-fold, then logically it would make economic sense to burn ten times as much energy to mine it, no matter how many transactions are processed.

You are right. I suppose a fair target to tune would be the cost-of-51%-attack instead of an arbitrary block size or percent fees.

The energy consumed per transaction to produce the PoW to earn the block subsidy decreases as the number of transactions increases, because the two are independent of each other, with rising transaction volumes not increasing the block subsidy and the associated energy consumed to earn it.

Moreover, the energy consumed per transaction to produce the PoW to earn the transaction fee decreases when the transaction fee decreases.

So for both of these reasons, a cryptocurrency like Bitcoin Cash, that can process thousands of times more transactions than Bitcoin, has the potential to be orders of magnitude more energy efficient.

My metaphor:

Just like governments mint currency from bullion, miners mint bitcoin from electricity.

While I think it's weird to consume so much energy to create something so ephemeral, I'm still unclear about the externalities, eg negative ecological impact, driving electricity prices up. Is all this effort worthwhile? Maybe? It feels like a tulip bulb craze, south sea bubble. But I've been so wrong so many times, I question my own certainty.

At least long-term holders believe it's worth it.

You can judge that there exist such people by the fact that the bottom of crashes (at the maximum fear), do not continue until zero.

I suspect cryptocurrency fills a need for hard money - not like fiat, that loses purchasing power at the whim of unelected central or commercial bankers.

Of course, there's lots of volatility, but I suspect that's normal for an asset class this new. Do you research, discount its future value to you, try to come up with true and relevant inflation rates, and only buy when the market is in a fear cycle.

About the externalities, they are the same as with any other human endeavour. Government should help internalize environmental costs.

I think there are two angles on Bitcoin that make some sense:

1. The true believers like labor theory of property a lot, and see having a mining rig as an extension of that(falliciously or no - there are plenty of critiques of labor theory of property itself). A bitcoin represents the "same amount" of effort relative to its value at a given moment in time.

2. As a lower margin use of energy premised on maintaining consensus, it has qualities that resemble perfect competition(in the economist's sense of that phrase) but actually go BEYOND perfect competition. While you can own a large part of the distribution or mining power, if you try to monopolize Bitcoin as a rentier you just end up forking it, as has been demonstrated by various events over the years. If people don't like your particular imposition of scarcity, they pull the rug in short order.

The second part is rather more important than the first, IMHO. Mining's meting out of energy usage as credit and the resulting price deflation is a way to get people on board with consensus and start engaging in speculative action, but there's a sense among the people interested in other cryptocurrency that that's just a starting point, and the development of distributed consensus tech itself is what makes this a "railroad" and not a "tulip".

"No rentiers" is really a pretty earthshaking concept, to the point where most of the people in the space can't see that light and look at the shadow puppets instead. But it does not seem to be refuted by anything I've encountered. While onramps and offramps to crypto are mostly controllable, this is still a huge upset to our models of what markets are or could be.

Nice. Will now read about "no rentiers". I'm curious about the consensus use cases.

Most of my interest is around authenticity. Provenance, verifiability, identity, and so forth.

Ian Goodfellow articulated my own hunches, beliefs about this: Detecting fraud, fakes, lies is a non-starter. Authenticity has to be out of band. So sign your works, and then record it on some trusted blockchain.

Ian Goodfellow: Generative Adversarial Networks (GANs) | Lex Fridman Podcast #19 [2019] https://youtu.be/Z6rxFNMGdn0?t=3329

Goodfellow is the first person I've read (or heard) that espouses this pretty basic, obvious position. There's apparently still a giant cohort who utterly reject authenticity. Even as opt-in. Because something something Freedom Speeches™.

I intend to learn about the consensus stuff. Like you seem to already grok. That's clearly a necessary enabler for authenticity use cases.

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